The adjusted earnings however lagged the prior-year quarter earnings of 50 cents by 2.0%. The results were impacted by sluggish macro-economic scenario and weather-related headwinds, which in turn were reflected in lower consumer spending.

Gross profit increased 2.1% to $1.9 billion, driven by strong sales. Adjusted operating income however declined 4.4% in the quarter to $470.5 million due to higher adjusted operating expenses.

Other Financial Updates

Cash and cash equivalents were $331.5 million at the end of Mar 30, 2013 compared with $320.8 million at the end of Dec 29, 2012. Long-term debt was $2.56 billion at the end of third quarter compared with $2.8 billion in the prior quarter.

Our Recommendation

Sysco believes in growing through acquisitions since the company operates in a highly fragmented industry. It intends to achieve sales growth of 0.5% to 1% through acquisitions in the long term. The company has a number of acquisitions at various stages of processing at the moment.

The acquisition environment is currently favorable and the company has a number of potential opportunities in the pipeline. To date in fiscal year 2013, the company has already acquired a total of 9 companies, whose aggregate annual revenues are over $750 million.

We appreciate the company’s strategy of growth through acquisitions and its efforts to reduce costs and improve efficiency. However, we are concerned about rising costs due to fuel price hikes and other inputs, which hurt margins.

Sysco holds a Zacks Rank #4 (Sell). However, there are other favorable stocks in the retail and wholesale sector that are worth considering. These include Green Mountain Coffee Roasters Inc (GMCR), Kroger Company (KR) and Sears Holding Corp (SHLD), all of them carrying a Zacks Rank #1 (Strong Buy).